Friday, February 22, 2013Last Update: 5:16 AM PT

Jig Is Up for 73-Year-Old Trader

MANHATTAN (CN) - Federal prosecutors and the SEC claim James Tagliaferri ran a Ponzi scheme through his Caribbean company, TAG Virgin Islands. Tagliaferri, 73, formerly called his company the Taurus Advisory Group. The SEC charged Tagliaferri with "defrauding clients from whom he withheld the fact that he was receiving kickbacks for investing their money in thinly traded companies," the agency said in a statement. Tagliaferri's company was registered with the SEC and "as of March 25, 2010, TAG had $261 million in assets under management; as of March 31, 2011, it had $9 million in assets under management," the SEC says in its administrative order. "During the relevant period, TAG was co-owned by Tagliaferri and Patricia Cornell, who at one time were married." Cornell is not a defendant in the SEC order or in the 15-count criminal indictment. The SEC said in a statement that Tagliaferri "routinely used his discretionary authority over the accounts of his clients to purchase promissory notes issued by particular private companies. In exchange for financing those companies, TAG received millions of dollars in cash and other compensation - a conflict of interest that was never disclosed to investors." It added: "when the promissory notes neared or passed maturity and his clients demanded payment, Tagliaferri misused assets of other clients to meet those demands." The federal indictment mentions three companies allegedly involved with Tagliaferri and TAG, Company 1, of Garden City, N.Y.; Company 2, of New York City; and Company 3, of Berwyn, Pa. The indictment states: "(A)n individual and his brother were involved in a number of businesses that received TAG client funds ('Associate 1' and 'Associate 1's Brother.). Beginning in or about January 2008, Associate 1 exercised substantial control of Company 2. In or about April 2007, Associate 1 was judicially barred from serving as an officer or director of a publicly traded company for five years." Company 2 was publicly traded on the Pink Sheets; Companies 1 and 3 were privately held, according to the indictment. Prosecutors say Tagliaferri got millions of dollars "for his own benefit," without telling his customers, in exchange for putting their money into Company 1, or "one of various companies associated with Associate 1 and Associate 1's brother." These kickbacks, which Tagliaferri disguised as consulting fees, could be as high as 10 percent of the money he handed over-and he handed over more than $120 million of it, according to the indictment. The United States seeks forfeiture and penalties for wire fraud, securities fraud, and Travel Act violations.